Getting started with 50/30/20
50/30/20 is a proportional budgeting system, meaning you divide your monthly income into different categories based on percentage. It’s simple and flexible, which makes it a great option for beginners.
Calculate Your Income
Your monthly net income—that’s your take-home pay after taxes and payroll deductions—is used to determine your spending limits
For example, if your monthly net income is $3,000, you should be spending:
- 50%—$1,500 on needs
- 30%—$900 on wants
- 20%—$600 on savings
Did you know... the 50/30/20 budget comes from All Your Worth, a book by Elizabeth Warren and Amelia Warren Tyagi
Define Your Categories
The 50/30/20 budget divides your monthly spending into three categories: Needs, Wants and Savings
Needs
Needs are your essential expenses—skipping them would lead to serious consequences like illness, job loss or legal trouble; examples include:
- Housing/rent
- Basic utilities
- Food
- Clothing
- Health care
- Transportation
- Taxes
- Minimum payments
Budgeting tip: Many expenses are a mix of needs and wants—if a bill falls under multiple categories, split its total between them
Wants
You’ll find that wants account for a lot of your spending—these are all the non-essential products and services you buy; examples include:
- Cable/Internet/phone
- Restaurants/takeout
- Entertainment
- Travel
- Fashion
- Electronics
- Subscription services
Savings
Savings are any expenses related to debt repayment and savings plans; examples include:
- Emergency fund savings
- Student loans
- Credit card debt
- Retirement savings
- Down payments
- Personal savings goals
Tracking Your Spending
Track your spending for at least two months using the method you’re most comfortable with:
- Apps
- Online banking
- Spreadsheets
Budgeting tip: Don’t forget to factor annual payments into your budget—divide the annual payment amount by 12 to get the monthly cost
Compare your monthly spending to your 50/30/20 totals:
- Needs goal: $1,500 / $1,300
- Wants goal: $900 / $1,500
- Savings goal: $600 / $200
Don’t worry if they don’t match up at first—start shifting your spending habits to better align your totals with the 50/30/20 guidelines
Make It Work
If your spending isn’t matching up with the 50/30/20 guidelines, you have a few options:
- Reduce your spending: In order to hit the 50/30/20 guideline, you may need to sacrifice some of your wants or find cheaper alternatives for your regular monthly expenses
- Increase Your Income: If you’re consistently overspending and unwilling to compromise, the only solution is to make more money—look for side gigs to increase your income
- Modify Your Percentages: Make sure your budget matches your financial goals—for example, if paying off debt is your top priority, a 30/10/60 budget will get you there faster
Sources: All Your Worth, TheSimpleDollar.com